Why Ethical Investment Funds Are A Valuable Option For 2022
It’s not long ago that the words ‘ethical’ and ‘investment’ were seen as being incompatible. Fast forward to 2022 and investors of all stature are taking the concept seriously. This is partly due to greater consciousness about ethical issues, and a growing realisation that such a model can work.
More businesses are adopting ethical methods in their own practices as they seek advantages over their competitors, and in 2021, the UK Government introduced a policy paper on ‘Greening Finance: A Roadmap to Sustainable Investing’. The concept of ethical investment funds is here to stay, and getting involved has never been easier.
- What are ethical investment funds?
- Challenges of ethical investing
- Ethical funds: the sector by size
- Examples of ethical investing
- Pros & cons of ethical funds
- Ethical investments as a long-term strategy
What are ethical investment funds?
An ethical investment fund is generally linked to a company that harbours additional goals to profit. Profit is of course essential to sustainability, but other concerns may include the social impact a business has on the world, partnerships with charitable organisations and an eye on carbon footprint.
Challenges of ethical investing
A certain amount of research is necessary by any would-be investor. Different companies have different levels of transparency as to where their money lies. Many straddle both camps – operating ethically on some counts but not in others. For example, a firm may devote huge sums to green investments but at the same time fail to look after the wellbeing of its employees.
Potential investors in ethical investment funds would need to firstly gauge all the usual financial considerations such as personal return on investment (ROI) and then every aspect of the company’s working methods, from its staff care to its social and environmental initiatives.
Ethical funds – the sector by size
Would-be investors need to consider personal profit when it comes to looking into making a commitment – otherwise, they could simply make a charitable donation. It’s useful to know that, although the sector remains a bit part of the wider scheme of things, it’s growing at a fast rate.
Firms meeting environmental, social and governance (ESG) criteria doubled in value between 2010 and 2016, and the total for assets falling under ESG sustainability rose to nearly $1trn in 2021. Some forecasters have predicted this market to double in 2022.
There’s a greater awareness amongst individuals when it comes to choosing brands and products, and pressure on businesses when it comes to acting in a moral way. If more people are moving towards more ethical brands, the shift will likely feed into an increase in those looking for ethical stocks.
All this is likely to have a knock-on effect when it comes to businesses reviewing their own sustainable methods in future, and it’s likely to become a field of difference for firms alongside competing on product range and price point.
Examples of ethical investing
When it comes to getting involved, many don’t look beyond funds. But there’s a whole other world of potential investing where more sustainable choices can be made.
Environmental, Social and Governance Funds (ESG)
ESG funds meet set criteria on the environmental and social impact a business has. The movement was started by the United Nations and works like a credit score. Businesses are still concerned with profit, whilst avoiding non-ethical methods.
Socially Responsible Investing Funds (SRI)
SRI funds avoid links to industries with questionable moral practice, such as weapons-trading, gambling or tobacco.
Banking & pensions
You may find a bank that makes more environmentally-friendly investments than your current model – the same goes for any other pot that you pay into, such as a pension. Such switches are like any other consideration when it comes to managing your money.
The question for investors is whether they can sustain their financial position whilst moving to a model that sits more comfortably with their conscience.
Pros & cons of ethical funds
Every investor wants their money to work harder, but an eco-investment benefits the wider society as well as the individual. There’s likely an increase in personal happiness levels to be won, and contributions to further growth of the sector. This can only be a good thing for the world as a whole, as more businesses seek to lessen their harmful impact on society.
On the downside, the amount of research required before investing in an ethical fund can be time-consuming. There’s also no guarantee that an investor will find a company that complies 100% with their own moral view, and this is where complexities in the issue come to the fore.
For example, many people believe owning a firearm is a basic human right; to others such a view is preposterous. It may also be difficult to expect the same ROI when investing with an ethical company over a non-ethical one.
Ethical investments as a long-term strategy
All things considered, an ethical, sustainable investment is a personal choice but the benefits of doing so can be huge – to the individual, wider society and business methods of the future. The fact that it’s possible to make both a profitable investment and benefit society is perhaps the most poignant argument of all. And greater business transparency combined with more ethical working practices can only leave the world in a much better place for future generations.
Get in touch with the team at Carrick Financial Management today. Our financial planning services will help you get to grips with your finances and make smart ethical investments in your future.
Reach out today by calling the team on 0191 217 00 07